<h2>CHAPTER 32</h2>
<h3>PROFIT-SHARING, PRODUCERS' AND CONSUMERS' COÖPERATION</h3>
<h4>§ I. PROFIT-SHARING</h4>
<div class="sidenote">Nature and definition of profit-sharing</div>
<p>1. <i>Profit-sharing is rewarding labor with a share of the profits in
addition to contract wages.</i> The essential mark of profit-sharing is
that the additional payment depends on the net profits of the whole
business at the end of the year. It is not to be confused with a free
gift, or with special privileges granted by the employer, such as
lunch-rooms, bathrooms or houses at a low rent. Profit-sharing is a
contract made in advance, not a free gift. Nor is it the same as a bonus
or premium for a larger output, made contingent on the physical product,
on the increased number of pieces turned out by the workmen,
individually or in groups. Premium for output is given for something
directly under the influence of the worker. The amount of profits is
affected by the amount of output, but also by a number of other things
that are quite outside the control of the workmen.</p>
<div class="sidenote">The possibilities of profit-sharing</div>
<p>2. <i>The purpose of the employer in adopting profit-sharing is to
stimulate the industry of the workers, thus reducing waste and cost of
labor and supervision.</i> The employer adopting the plan does not intend
to lose by it; he believes that if he can get his workmen to take an
interest in the business his costs will be reduced. He offers to divide
with them the resulting savings. There is, in every factory, greater or
less waste of materials, destruction of tools, and<span class="pagenum"><SPAN name="Page_293" id="Page_293">[Pg 293]</SPAN></span> loss of time, that
no rules or penalties can prevent. If the worker can be made to take a
strong enough personal interest he will use care when the eye of the
foreman is not upon him. The product also can be slightly increased in
many ways by the workmen's exertions or suggestions. In some cases the
quality of the work cannot be insured by the closest inspection as well
as it can be by a small degree of personal interest. Either
responsibility for the fault cannot be fixed, or the defect is one not
measurable by any easily applied standard. Strikes are averted, good
feeling is promoted, and contentment is furthered if the interest of the
worker can be made to approach, and actually to be in harmony with, that
of the employer. The economic result of the plan, if it can be made to
work, must be to reduce the costs of these establishments below what
they are. The crucial question is whether this alone insures that the
costs will be less than those of competitors, thus giving a source out
of which an increased amount, really a wage, can be paid to the laborer.
This additional wage is made conditional on the employer's success in
gaining a net profit on the year's business.</p>
<div class="sidenote">Its successes and failures</div>
<p>3. <i>The profit-sharing plan is now successfully working in over one
hundred firms in America and Europe.</i> The plan was first tried in Paris
by Leclaire, a house-painter. In house-painting there is often a great
waste of materials and time by men working singly or in small groups in
different parts of the city. By this new method Leclaire enlisted the
aid of the workmen, reduced the costs, and increased the profits. It is
a remarkable fact that the plan has been continued successfully by the
same firm to the present time. The most important examples of
profit-sharing in the United States are the Pillsbury Mills in
Minneapolis, Procter and Gamble's soap-factories at Ivorydale, O., and
the Nelson Mfg. Co. at Leclaire, Ill. In some cases both manufacturer
and workman value the system highly. N. P. Gilman, the author of "Profit
Sharing," puts the ratio of<span class="pagenum"><SPAN name="Page_294" id="Page_294">[Pg 294]</SPAN></span> successes very high. Others declare that
the failures are mostly lost sight of and are very many. The proportion
of business done in this way is not large. One hundred firms is a very
small fraction of one per cent. of the total number of firms in Germany,
France, England, and America. A still more important fact is that this
method of remuneration did not spread in the ten years preceding 1900.</p>
<div class="sidenote">Objections to and difficulties in profit-sharing in practice</div>
<p>4. <i>The failure of profit-sharing to grow is due to objections on the
side both of the employer and of the workman.</i> On the side of the
workman there is the bookkeeping difficulty. He is suspicious, and he
lacks knowledge of the business. If at the end of the year the books
show no profits, the workman loses confidence, considers the plan to be
mere deception, and rejects it. Moreover, the plan puts a limitation
upon the workman's freedom to compete for better wages by changing his
place of work. It is almost indispensable to make length of service a
condition to the sharing of profits. Workmen coming and going, working
only a few months, cannot be allowed to share; the percentage given to
the others increases with length of employment. Whenever men are thus
practically subject to a fine (equal to the amount of shared profits) if
they accept a better position, there is danger of a covert lowering of
wages. The plan tends to break up the trade-unions, which is one of the
reasons that the employers like it, and is the reason that organized
labor opposes it. The employer on his part objects to the interference
with his management, the troublesome inspection of the books, and the
constant grumbling and complaint of the workmen. It makes known the
amount of his profits; if they are large, the advertising of his success
invites competition; if they are small, publicity injures his credit and
depresses the value of his property. In view of all these difficulties
it is not surprising that while the plan often starts promisingly, it
usually loses its efficiency after a short trial. Business methods are
severely subject to the principle of the survival of the fittest.<span class="pagenum"><SPAN name="Page_295" id="Page_295">[Pg 295]</SPAN></span>
Through competition and the survival of the firms that adopt
improvements, better methods must eventually supplant poorer ones. If a
method fails to spread when it has been tried for fifty years and all
are free to adopt it, there must be some defects inherent in it. That
must be our conclusion as to profit-sharing.</p>
<div class="sidenote">Defective character of profit-sharing</div>
<p>5. <i>It is usually better to make wages depend on the worker's efficiency
rather than on the profits of the whole business.</i> The strongest motive
to efficiency is present when reward is connected immediately and
directly with effort, not with some result only slightly under the
worker's control. In profit-sharing the added share is only partially
due to increased effort of the worker. Labor is but one of the groups of
costs. Profits are the net result of many influences. Chief among these
is the wisdom of the enterpriser in planning and conducting the
business. The "profits" may be nothing, though the worker may be
exerting himself to the utmost. The plan is, therefore, reactionary, not
in accord with the general progress of the wage system, which is tending
constantly to centralize responsibility, to put the risk into the hands
of competent managers, and to secure to the worker a definite amount in
advance, as high as conditions make possible. The system of premiums, or
bonus payments, for output, gives in most cases better results and is
rapidly spreading. It is sounder in conception and works better in
practice. This premium depends on the increase by the laborer of the
output of his particular machine or process as compared with a standard
based on the experience of some definite period.</p>
<h4>§ II. PRODUCERS' COÖPERATION</h4>
<div class="sidenote">Purpose of producers' coöperation</div>
<p>1. <i>Producers' coöperation is the union of workers in a self-employing
group to do away with any other enterpriser than themselves, and to
secure for themselves the profits.</i> Its object is not to do away with
any return on the capital<span class="pagenum"><SPAN name="Page_296" id="Page_296">[Pg 296]</SPAN></span> investment. Capital may be borrowed either
from outsiders or from the individual coöperators, and is paid a
stipulated interest apart from the profits. The source of the gain is to
be found in the saving of what the worker looks upon as the needless
drain of profits into the pockets of the employer. The hope is that the
enterpriser's function (if it is admitted that he has any useful
function) will be performed by the workers collectively or through their
representatives. They undertake to furnish brain as well as muscle,
management as well as hand-work. The hope is even to increase the
profits through increasing the stimulus to the workers and by saving in
friction, disputes, and strikes.</p>
<div class="sidenote">Its limited success</div>
<p>2. <i>Practically the plan has been made to work in a comparatively few
simple industries.</i> The most notable examples of successful coöperation
in America have been the cooper-shops in Minneapolis. There were a
simple problem of costs, few and uniform materials, patterns, and
qualities of product, few machines and much hand-labor, simple
well-known processes, a sure local market. Mr. Lloyd, in a recent book,
describes many successful societies in England, but they are all of a
simple sort of industry, as agriculture and dairy-farming. Within the
whole field of industry, this method of organization makes little if any
progress. Most experiments have failed and the successful ones often
become ordinary stock companies with the most able men in control.
Therefore, whether losing or making money, they nearly all cease to
exist as coöperative enterprises. This result has disappointed the
prophecies of many wise men of seventy-five years ago. In the time of
John Stuart Mill, great expectations were entertained of the future of
productive coöperation, which was thought to be a solution of the whole
social problem.</p>
<div class="sidenote">Its main difficulty</div>
<p>3. <i>The main difficulty in productive coöperation is to secure managing
ability of a high order.</i> There is no touchstone for business talent, no
way of selecting it with any certainty in advance of trial. This
selection is made hard<span class="pagenum"><SPAN name="Page_297" id="Page_297">[Pg 297]</SPAN></span> in coöperative shops by the jealousies and
rivalries, and by the politics among the workmen. A man thus selected by
his fellows finds it almost impossible to enforce discipline. In
coöperation there is occasionally developed good business ability that
might have remained dormant under the wage system; some workmen showing
unusual capacity cease to be handicraftsmen. But the unwillingness on
the part of the workers to pay high salaries results in the loss of able
managers. Having demonstrated their ability, the leaders go to competing
industries where their function is not in such bad repute, and where
higher salaries can be earned; or they go into business independently,
being able easily to get control of the necessary capital.</p>
<div class="sidenote">Coöperators under-value the enterpriser's function</div>
<p>4. <i>Most coöperative schemes have suffered from a lack of good theory,
an inability of the workers to see the importance of the enterpriser's
service.</i> Most men make a very imperfect analysis of the productive
process. They see that a large part of the product does not go to the
workmen; they see the gross amount going to the enterpriser, and they
ignore the fact that this contains the cost of materials, interest on
capital, and incidental expenses. They ignore further that the
enterpriser's function is a productive and essential one. The theory of
exploitation, or robbery, as explaining the employer's profits, is very
commonly held in a more or less vague way by workmen. With a body of
intelligent and thoroughly honest workmen, keenly alive to the truth,
the dangers, and the risks of the enterprise, coöperation would be
possible in many industries where now it is not. The producers'
coöperative schemes usually stumble into an unsuspected pitfall. When a
heedless and over-confident army ventures into an enemy's country
without a knowledge of its geography, without a map, and without leaders
that have been tested on the field of battle, the result can easily be
foreseen.</p>
<p><span class="pagenum"><SPAN name="Page_298" id="Page_298">[Pg 298]</SPAN></span></p>
<h4>§ III. CONSUMERS' COÖPERATION</h4>
<div class="sidenote">Nature and kinds of consumers' coöperation</div>
<p>1. <i>Consumers' coöperation is the union of a number of buyers to save
for themselves the profits of the merchants or agents.</i> There are many
classes of consumers' coöperation, but the chief ones are: (1) to sell
goods (retail stores); (2) to provide insurance (coöperative insurance
companies); (3) to provide credit or capital (coöperative banks). These
are also productive enterprises, for the merchant's work adds value to
the goods, the insurance company and its agent do a real service, the
profits of the small bank are, ordinarily, earned fairly under existing
conditions. The terms producers' and consumers' coöperation merely set
in contrast the part of the productive process that is undertaken.
Producers' coöperation is concerned with the earlier steps, usually
stopping when the product is disposed of to wholesale or retail
merchants. Consumers' coöperation (often called distributive
coöperation) is concerned with the later steps, the placing of a
consumption good (rarely also productive agents) into the hands of the
final user. It imparts the same value to goods that the retail merchant
does. The one thing this class of coöperators is sure of when they begin
is a number of consumers to make use of the service or products they
purpose to supply; hence the name.</p>
<div class="sidenote">Costliness of competitive mercantile business</div>
<p>2. <i>The waste of competitive mercantile business is the source from
which it is expected that the savings of the coöperative enterprise will
come.</i> It is a great expense to the retail dealer to secure a body of
customers. Rent of store-room, clerk hire, interest on invested capital
are fixed charges, which can be met only on condition of a regular and
frequent turnover of the stock. To attract customers the dealer must
have a well-located store, must advertise, keep open long hours, and pay
idle clerks. Frequently he must give credit, raising the price enough to
cover<span class="pagenum"><SPAN name="Page_299" id="Page_299">[Pg 299]</SPAN></span> the expense of bookkeeping, collection, bad accounts, and loss of
interest. The public's likings, whims, lack of judgment, and lack of
business analysis make these charges necessary. There are many
communities where it would be impossible to carry on a cash business
even at considerably lower prices. Customers are exacting and require
the costly delivery of small packages; two horses and a driver must
travel two miles to deliver a spool of thread or a half-dozen oranges.
Frequent changes of fashion and the shifting of customers from one store
to another keep the merchant always insecure in his trade. A number of
buyers mutually agreeing to pay cash, to buy at certain times, to place
all their orders with one store, to go to a cheaper location, down an
alley or into a basement, can save much of this cost on one condition:
that the management approaches in its efficiency that of ordinary
competitive business. In spite of all these advantages, if there is
inefficient management the final cost will be no less than that of
ordinary business.</p>
<div class="sidenote">The more successful coöperative stores</div>
<p>3. <i>Despite the possibilities of saving, most coöperative stores fail
through a lack of good management.</i> Note first the greater successes.
Since 1842, from which time it dates, the coöperative-store movement has
progressed steadily in England, where the scores of retail societies are
federated and own large wholesale stores. The long experience has
developed good methods and a conservatism almost inconceivable to an
American mind. They are practically great stock companies in which one
can buy a share at a small cost and become a purchaser at usual prices,
receiving a dividend later according to the amount of his purchases.
Coöperative stores in American universities are generally successful,
apparently because they don't coöperate. Some get into politics and go
the way of the wicked. The survivors gravitate into the hands of a
committee of the faculty, which tries to employ an efficient manager,
and administers the business as a public<span class="pagenum"><SPAN name="Page_300" id="Page_300">[Pg 300]</SPAN></span> trust without private profit.
The wastefulness of multiplying orders for text-books to be used by a
class whose number is definitely known in advance, and the comparatively
uniform character of the supplies, make economy peculiarly easy in this
case. A large part of the services of the coöperative store, however,
are indirect; it reduces and regulates the charges in the stores near
by.</p>
<div class="sidenote">The failures and their causes</div>
<p>Nearly all the Granger stores, started thirty years ago in great
numbers, and most of the coöperative stores among American workmen, have
failed. The failure is easily explained by the ignorance of danger, by
lack of harmony, by credit sales, and by inefficient management. The
wastes of competitive business are partly a tax imposed upon men (taken
collectively) by their lack of business method; the community is not
intelligent enough, honest enough, or self-sacrificing enough to do
business in the most economical way. Partly they are the price paid for
variety and change, and for the cherished American right "to
kick"—something difficult for the members of a coöperative store to do
without hurting themselves.</p>
<div class="sidenote">Profit-sharing and coöperation in relation to the
enterpriser</div>
<div class="sidenote">Continued need of the enterpriser</div>
<p>4. <i>The experience with these plans verifies the analysis of the
enterpriser's function: pure profits are the earnings of a productive
service.</i> Comparing these three plans, they are seen to be alike in
seeking to make workers share some of the profits, to change the
destination to which profits would go. The first would create profits by
the effort of the workers, and give them a part of the saving. The
second would have collective workers perform the enterpriser's work in
the factory and get his reward. The third would have collective buyers
do the work of the merchant and save his profits and other costs. The
last is the easiest to do. Profit-sharing is next in difficulty, and
producers' coöperation is the hardest of all to put into practice. In
some cases, under some conditions, the enterpriser's services may be
more economically performed than at present, for the waste is great. But
taking men as they are and things as they are, in most<span class="pagenum"><SPAN name="Page_301" id="Page_301">[Pg 301]</SPAN></span> places the
enterpriser's service is necessary and must be paid for. His
contribution to the success of the industry depends on his nature and
ability, and it can be distinguished theoretically and practically from
the contribution made by the workmen. Nothing but changes in human
nature, in education, and in morality can diminish the necessity for his
service.</p>
<hr class="chap" />
<p><span class="pagenum"><SPAN name="Page_302" id="Page_302">[Pg 302]</SPAN></span></p>
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